The American Quarterly Review, No. 17, March 1831

by Various

To these irrefragable positions we may add, that the public has quite as much interest as the bank in keeping this matter on its present footing. One of the greatest benefits which a community derives from banking institutions, is the substitution for a part of its currency of the cheap article of paper for the costly one of specie, by which the capital that would otherwise have been used as money, may be employed for other useful purposes. But if the Bank of the United States, and each of its offices, were obliged, as a matter of right, to redeem the notes of every other, it would require an increase of specie which would deprive the country of the benefits of this substitution, as well as the bank of its profits. The same remark applies to their demanding a small premium for their drafts on each other. For each of the offices to be prepared not only to redeem its own paper, but to meet the drafts which others may draw on it, it is obliged to keep on hand an extra supply of specie; but if the check of the premium were removed, and it was no longer a matter of discretion, a much larger amount would be necessary, and nothing but experience could determine whether any thing short of the whole capital of the bank, or even that, would be sufficient for the purpose, under extraordinary circumstances, and great fluctuations of trade. So that upon the whole this complaint against the bank seems to be pretty much of the same character as these—that rivers do not run upwards as well as downwards—or that the same season which gives us ice does not also give us melons and peaches—or that a rail-road or a canal, which reduces the expense of carriage to one-tenth, does not reduce it to nothing.

4. Having thus noticed all the objections which the president has made to the bank, let us now turn our attention to the substitute that he has proposed. This is a national bank, at the seat of government, which is to be a branch of the treasury department, and which is, we presume, to have subordinate offices distributed among the several states. Its business will be to receive the public revenue from the collectors of the customs, receivers of the land offices, and postmasters, together with such deposits as individuals choose to make, and to give drafts, from time to time, on distant offices, for a premium.

According to this project, the funds of the treasury, instead of being, as now, deposited in the several banks convenient to the receiving offices, are to be in the immediate keeping of the new corps of the treasury to be levied for the purpose, by which means the public is to lose one of its present checks on the malversation of its agents. It is known that there are in most banks various officers, each with his appropriate duty—as—one or more to keep accounts—another to receive money—another to pay it away—another to be its general depositary—and that they are all placed under the superintendence of a president, whose character and station in society give assurance for the faithful discharge of his duty. That there is, moreover, a board of directors, who hold their offices only for a year, and who, once a month or oftener, appoint a committee to examine the affairs of the bank, and especially to ascertain whether the amount of notes, securities, and specie, correspond with the accounts of the institution. Yet, with all these safeguards, it is found, now and then, that men who had previously been above all suspicion, have not been able to withstand the temptation to use the money thus placed in their charge, and that, occasionally, these frauds and peculations are practised a long time without detection. If this is the case, when there is such strict accountability, and unremitted vigilance, how would it be when there was neither, and when those who received the public money, instead of being compelled to deposit it in a bank, as soon as they received it, and to check for it when they paid it over, might use it as they pleased, provided they were always ready to meet the drafts of the government. At many places they might do this, and yet, in consequence of the large sum which is always lying idle, or rather unappropriated in the treasury, they might have the use of the excess, to a considerable amount, as long as they remained in office. For several years the amount in the treasury has never been less than five millions, and sometimes considerably more; and of this, according to the ordinary current of business, one-third or upwards would commonly be in the city of New-York, if it were not transferred to Washington; and this money, which is now invigorating industry and trade, it is proposed to consign either to utter idleness, or to the exclusive use of the officers of the treasury. In addition to that aversion to change which is felt by all office-holders, this plan might furnish them with no ordinary means of effecting their object.

But if for the sake of guarding against such strong temptation to speculate with the public funds, and against such an encouragement to corruption, by affording materials for it, the public money were required, as now, to be deposited in the banks; though that plan would be free from the objection we have just made, it would be liable to another quite as great—the very one of influence which the president has made to the bank of the United States—with this difference, however, that the influence derived from the government funds is now exercised by the Bank of the United States, and is a salutary check upon that exercised by the state banks, but then, it would be added to that patronage which is already thought sufficiently great for every desirable purpose, and sometimes for purposes not desirable. The large receipts of public money in our chief importing cities, would be distributed among those banks which were most in favour with the government, by which is always meant those that were its most zealous and efficient supporters; and thus the revenue of the nation, that is, the use of it, would be set up at auction, to be purchased by the obsequious devotion of the state banks to the existing administration. In a division of parties, not more equal than that we often witness in our country, the vote of a single state may decide that of the Union, and the vote of its principal city may decide that of the state. All this is perfectly well known to some of the friends of the scheme, but it is not so to those who are to pay for it, and who are less familiar with the workings of the political wires.

There is another part of this notable scheme, (we mean no pun,) which merits our attention. This new bank and its offices are to sell drafts on each other for a premium, and as the bank itself is to issue no paper, the drafts may be paid for in the notes of the state banks, "only so long as they continue to be redeemed in specie,"—such are the President's words. But suppose the very common case of a bank paying specie to-day, and not paying it, and not being able to pay it, to-morrow, what becomes of the public revenue then? To be placed no doubt first to the account of "unavailable funds," and then, to the credit of the treasury. When these new bureaux of finance are distributed over the Union, and having no paper of their own, must carry on their operations altogether in gold and silver, and the paper of the banks in their vicinity, it is impossible that, with the highest degree of vigilance, prudence, impartiality, and firmness, united, they would always avoid loss. But does any one believe that this delicate and important trust would always be exercised with impartiality and firmness? To believe it, would be to disregard all experience, and to shut our eyes to what is passing before them every day. When the officers of the government—themselves dependant more or less directly on popular favour—were to have the power of discriminating between what paper they would take and what refuse, how many motives would be for ever presenting themselves for exercising it improperly? To reject the paper of a substantial bank, that was hostile to the administration, if there were any such, and to take that of a tottering one, which was friendly. Let us suppose, by way of illustration, that some orator, or political manager, no matter which, being about to set out for congress, should apply to one of the treasury banks for a draft on Washington for a few thousand dollars, and should offer in payment of it the paper, not of a substantial bank, but of one which though poorer, was more patriotic,—this being the best he could get—is it probable that his application would be rejected? or that the officer would do more than inquire whether the bank then paid specie, without troubling his head to ascertain whether it merely made a show of paying it, and whether it would not be insolvent in a month. Let it not be said, that if doubts were entertained of the solidity of the bank, its paper might be immediately converted into specie; for, in the first place, the bank may be some hundreds of miles distant; and though it were in the immediate vicinity, payment of specie would not always be demanded before it was too late. Besides, the very demand of specie may, like a new weight breaking down an overloaded packhorse, make it stop payment at once. The bill now before congress, for allowing the treasury credit for certain "unavailable funds," received some years since, would form an excellent precedent for such occurrences, and it is one to which there would be frequent occasions of appealing. And this mode of managing the public revenue is proposed to take the place of that which now exists through the Bank of the United States, by which the government has not lost a dollar; and it is next to impossible can lose one. Verily, if the nation were to suffer itself to be gulled by such a scheme as this, they would deserve to suffer the loss they would be sure to incur.

But pecuniary loss may be but a small part of the price which the nation would pay for this new treasury bank. It may be made to pay, in addition, the richest jewel it possesses—its political purity. The influence which the national executive exercises over the present Bank of the United States, is moderate, and not more than is salutary. It annually appoints a part of its directors, and, at stated periods, may, moreover, exercise its right, of having the government funds transferred from one part of the Union to the other, in a more or less accommodating way. But here its influence stops. The law, in pursuance of the charter, directs that the public money shall be deposited in the Bank of the United States or its branches, and in these it must be deposited, whether the president or his secretaries have good will or ill will to the bank, or whether the bank is willing to give any thing in return for their favour or not. These public deposits are valuable to the bank; and, for the benefit, they have paid, and we presume are yet willing to pay, a fair price. But the compensation is not paid to any officer of the government; it goes into the national treasury, and it consists of gold and silver, and not in the base metal of political influence.

We are well aware that many of the state banks are under the management of high-minded and honourable men, who would not be bidders at this auction, and who would scorn to purchase a share of the public deposits, at the price of their independence. But such might not prove to be the character of the greater number. Besides, in some of these cases, a majority of the stockholders might not sit idly by, and see the bank deprived of its share of government favour by the squeamishness of its officers, and might therefore either coerce them into compliance, or remove them.

If so much has been said about the influence attached to the office of the secretary of state, arising from the paltry patronage of printing the laws of the United States, what should be thought of that privilege of giving the permanent and uncompensated use of many millions of dollars to such powerful corporations as the state banks—embracing some thousands of directors, and some tens, nay, hundreds of thousands of stockholders and borrowers? We would appeal to that intelligent class of our citizens, who are quietly pursuing their occupations or professions at home, by which they secure to themselves independence and respectability, and who see, in the purity of our political institutions, their country's present happiness and future greatness, to take these things into consideration, and say whether they are willing to give to any administration such powerful means of exercising an influence of the worst sort over the minds of the people—whether they will take the money now gained or saved to the nation by means of the Bank of the United States, to enable a president and his cabinet to buy golden opinions of that numerous class who have them to sell.

The president lays some stress on the circumstance that his proposed treasury bank would not be a corporation, as is the Bank of the United States. But the lawyers tell us that there are two kinds of corporations—aggregate and sole—and the question is, whether influence is likely to be less extensive, or less dangerous, when it is transferred from the corporation aggregate, (the bank) to the corporation sole, (the executive). In the first case, the influence of the bank has checks from its charter—from its stockholders—from its directors—from public opinion—and, lastly, from the legislature. In the last, the influence would be added to that which is already deemed by many too great for the public tranquillity or safety. Whatever means the Bank of the United States possesses, of operating "on the hopes, fears, or interests of large masses of the community," the state banks possess, to a far greater extent; and it would always be in the power of the government to act on these corporations, either by the treasury bank "checking their issues," as the president proposes; or, in case that monstrous scheme should be rejected, by means of the public deposits; so that, in any event, if the charter of the present bank is not renewed, the influence of the executive will receive a most formidable increase.

Nor could the proposed national bank answer the same useful purposes to the commercial world, as the present Bank of the United States. And, first, as to transmitting values from one part of the Union to another, by means of bills of exchange. The president informs us the new bank might sell these at a moderate premium. But its means of doing so would be evidently far more limited than those of the present bank, since the latter, in addition to all the means possessed by the treasury bank, has its own large capital and credit. In the year 1829, the amount of drafts on each other which the bank and its offices sold, was upwards of twenty-four millions, and the amount of its transfers of public money, by means of treasury drafts, amounted to upwards of nine millions; making, in all, more than thirty-three millions. Now, although the annual public revenue is about twenty-four millions, yet as the expenditures of the nation are going on at the same time as its receipts, the money on hand, at any one time, seldom exceeds six or seven millions. According to the monthly statement of the bank, for the 1st of January of the present year, the amount of deposits on account of the treasury of the United States, was, after deducting over drafts, 6,940,628 dollars. But as this sum would be distributed very unequally over the United States, there would be in some places more money than the government had occasion for, and in others less, so that it would be compelled to draw on the former, to meet the public exigencies, without regard to the state of the exchange market, by reason of which, it would not only not be able to afford the public that general accommodation which the Bank of the United States now does, but be sometimes obliged to sell its drafts for a discount, instead of a premium. Thus, suppose the government has a large sum lying in New-York, (it sometimes has more than two millions there,) and it has occasion for 200,000 dollars in Maine, as much in Missouri, &c. Although it might have found a ready sale in these places for its drafts, for a small amount, at par, or even at a premium, yet the amount offered exceeding the demands of the market, the government must either sell its drafts at a discount, or be at the expense of transmitting the specie. In the mean while, the drafts which are thus sold at one place at a loss, might be in demand at another, but that demand the government cannot meet, because it must give its money another direction. We therefore think that this part of the scheme cannot be of much utility to the public, or of profit to the treasury.